Practice Pointer Series: Commercial Evaluation, An Integral Part of Out-Licensing

Tarun Khurana, one of our frequent guest bloggers, has sent us a practice pointer related to commercial evaluation.  This post would be useful for patentees, applicants and attorneys as Tarun provides an excellent overview of diligence both prior to and post patenting by providing specific cases.  (Warning: Long post follows).

Working in Technology Transfer and IP Out-Licensing domain makes one assess and evaluate commercial viability of numerous IP backed innovations across technology domains.  This evaluation helps appreciate that apart from the technology per se, there are multiple other parameters that play an even significant role in the commercialization process.  This evaluation process also helps inventors analyze their own work, not only from a technology point of view, but more importantly from a commercial viability and marketability perspective before initiating their research and investing in protecting IP relating thereto. However, most of such potential technologies do not undergo the “commercial fit test” and hence get added to Corporate’s portfolio as a white elephant with merely a show value.

In advanced jurisdictions like Israel and certain European Countries including Denmark and Finland, that there are hardly any patents filed without proper due-diligence on the future return on investment on the patent and/or without some of kind tie-up already having being done for commercialization or Out-Licensing of the technology.  To the contrary in India, even though there is a mandatory requirement for submission of details on working of the invention there exists very few cases where regular due diligence is part of the patenting process.

Hundreds of patent applications across technology domains are filed every month, with a number of them being from individual inventors and research institutes.  As individual inventors and R&D entities mostly have limited resources for commercialization of their technologies, they look out to out-license or sell the patent rights either before or soon after the grant of the patent. Licensing needs dictate the efforts required in terms of potential licensee analysis, marketing strengths, and convincing capabilities, and therefore licensing firms are chosen to represent such patented technologies and approach appropriate licensees to understand their interest levels in the technology before proceeding for discussions on terms and conditions for licenses and valuing the technology for the same.  Because such licensing efforts are generally taken on success basis, it becomes crucial for the licensing firms to assess and evaluate commercial strength of the patent and the technology protected therein thoroughly before committing to proceed with the out-licensing process.

It, however, remains a challenge to convince applicants and patentees about the commercial evaluation of each application in the overall out-licensing process.  The mind-set of the patentee that a granted patent is bound to be commercially successful is fallacious and needs to be corrected.  There is no guarantee that a granted patent will be enforceable or will lead to a commercially successful product. 

It is high time that technology commercialization, as a field of IP, be looked upon from a matured perspective, in which novelty and patentability of technology is only one of the parameters to be considered while assessing the chances of successful commercialization.  A host of other attributes play an even more important role during Out-Licensing process, some of which have been briefly discussed below through two case studies. These examples are mere illustrations and no other interpretations should be drawn from the analysis:

The first technology relates to a method and system for administering life cycle of Health insurance policy holder, in particularly a web-based solution for managing complete life cycle of Health insurance policy holder. More specifically, the disclosure relates to a web based system that is capable of managing the entire life cycle of a health insurance policy holder, right from the time he/she subscribes to a policy till the final settlement of insurance claims. The system and method described in the said patent application particularly discloses various interfaces and modules to connect the policy holder to the different stakeholders in his treatment, specially, the Doctors, the Drug Store Attendant, the Lab Assistant, the Nurses, and the Surveyor at the Insurance Company etc.

The second technology relates to a topical formulation for treatment of Warts comprising of two carrier systems, with one being a soluble sulfide and the other being a mixture of two drugs in oil in water emulsion.

Following is a small subset of parameters to be considered prior to initiation of an R&D project.  

Market Perspective: Even before the R&D process for a specific problem that is intended to be solved is started, it is extremely important to understand the market of the concerned domain as to whether the same is receptive to new technologies, especially for such technologies/products that expect royalty. For instance, in the warts application, the existing treatments available for warts include Chemical Destruction, Cryosurgery, Surgical removal method, and prescription medications using agents including Pondophyllin, Cantharidin, Bleomycin, Dinitrochlorobenzene, and Fluorouracil. The proposed formulation, on the other hand, is a topical formulation, based on sulphides alkali metals, which inherently have stability and toxicity issues. Further, sulphides based products, are typically not OTC products and hence have to be prescribed by Doctors, which is a non-preferred route of curing the warts by the patients. The market scenario also tells us that companies such as GSK, Merck, Dr. Reddy’s, and Cipla are the major players in the domain, and being a skin disorder product, which is already heavily populated, most of the focus of these companies lies in other medical indications including cervical cancer etc. Further, with a flood of salicylic acid based and non salicylic acid based products in the market, there seems to be little scope for companies to invest in such products. This is more in cases where there is limited clinical data available to the Potential In-Licensees.

Existing Technology Perspective: As was discussed above, with respect to the warts technology, a snapshot of products being right now marketed was analyzed and over 45 products including Duofilm, Salicure-17, Shaloxy-FW, Salicylix-SF, and Dr. Scholl’s were found out in the same domain. Being a heavily populated domain, introduction of a new product, which combines an active ingredient with a pain reliever, which also is quite known, would have a hard time creating excitement.

Patent Strength/Enforceability Perspective: Being granted a patent is completely different from being granted a strong and enforceable patent. A number of times, we encounter patents which although are good and bypass the market and product level analysis, are drafted and protected so narrowly that instead of in-licensing, there of more chances of the potential licensee designing around the technology. Taking for instance, the first independent claim of the web-based health insurance software, which claims:

Even if it is assumed that the above subject matter is patentable under S. 3(k) of the Indian Patent Act and also overcomes the novelty and obviousness issues, with the above exemplary claim being so narrowly drafted, enforceability would always be questionable and significantly hamper efforts of Out-Licensing the patent rights.

Potential Licensees Perspective: There are often cases in which the technology has a strong market application and that there does exist a need for such a technology to improve the manufacturing process. However, even under such circumstances, out-licensing efforts might not go through because of the target potential licensees that might be involved. For instance, a wire mesh machine that allows a continuous strip being used for making a welded metal lattice is a product that would do very well in EP and US geographies but Indian companies, most of them being unorganized in this domain, would be reluctant to in-license or buy patent rights of such a machine due to parameters such as cost involved, ease of replication, among others.

Supporting Data/Prototype/Clinical Data Perspective: Another important parameter used for evaluating products/technologies, especially in the pharmaceutical domain, is the level to which the Clinical tests have been done. With most in-licensees, particularly in India, looking to evaluate in-licensing proposals based on prototypes being developed and the clinical data available, it becomes integral to provide as much supporting data as is possible along with the IP details being given in the commercialization proposal.

It would be appreciated that above mentioned parameters are only an exemplary set, and many other attributes such as patent validity, extent of estimated effort and time involved in the process of commercialization, expectations of upfront and royalty payments, research being carried out with other competing technology companies, other available in-licensing opportunities, among many others play an equally important role.

Therefore patentees should appreciate that there is more to a successful technology transfer than merely having a patent in hand and a superior technology in mind. Many other considerations play a role in determining whether the patented product would be acceptable in the market and these are the considerations that need to be analyzed before even initializing the R&D process so that there is little resentment in case after the complete R&D and patent process, one realizes that the applicability and commercial viability of the concerned subject matter is limited.